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As a follow-up to a previous report on the costs and effects of Department of Defense (DOD) compliance with Office of Management and Budget Circular A-76, GAO provided information on employees displaced by actions taken pursuant to the circular. The circular directs federal agencies to procure services from the private sector when doing so is more economical than in-house performance. GAO questioned displaced DOD employees to: (1) determine the hidden costs of contracting, such as unemployment or welfare payments to separated employees; and (2) compare the jobs of displaced employees who went to work for contractors to their previous government employment.

GAO found that: (1) 56 percent of the involuntarily separated employees questioned received unemployment compensation or public assistance that amounted to about $215,000; (2) 66 percent of the involuntarily separated employees were employed at the time they were questioned by GAO; (3) 34 percent of the involuntarily separated employees were unemployed at the time they were questioned by GAO; and (4) the amount of unemployment compensation and public assistance paid to involuntarily separated employees was minimal when compared to the savings realized by DOD in contracting for the studied activities. In addition, GAO found that, of those displaced employees who went to work for contractors: (1) 79 percent were doing the same type of work they had previously done for the government; (2) 53 percent were receiving lower wages than they received from the government; (3) most were receiving better benefits than they had from the government; and (4) while 88 percent were at least somewhat satisfied with their federal jobs, only 39 percent were at least somewhat satisfied with their contractor positions.